What can income elasticity of demand tell us about the nature of a good?
What will be an ideal response?
The income elasticity of demand for a good equals the percentage change in quantity demanded of a good due to a percentage change in the consumer's income. Using income elasticity, products can be classified as normal goods or inferior goods. Goods with an income elasticity above 1 are called luxury goods. An income elasticity which is above 0 but less than 1 indicates that the good is normal. Inferior goods will have a negative income elasticity.
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Official poverty rates in the last 40 years have
A) fallen dramatically. B) risen dramatically. C) stayed roughly the same. D) been eliminated.
Which of the following is an example of adaptive expectations?
a. James hears that many companies are laying off people and decides not to change his job at this time b. Kirsten reads about the continuous rise in the prices of necessary goods and the simultaneous rise in the level of unemployment and knows that the country is heading for stagflation. c. Kate knows that inflation is on the rise and that the best strategy for her firm would be to lower the price of its product. d. Peter knows that the Federal Reserve is planning to lower interest rates next month and decides to apply for a loan.